The delicate issue of pricing is something that hardware and software marketers and designers will need to tackle

One of the most important marketing tools we have is also the simplest to use. It's the price tag. This has been one of the core issues facing the console business lately as we watch retail sales drop year by year, month by month. Game publishers have been privately (and sometimes publicly) asking console makers to reduce prices in order to stimulate demand for software. Of course, reducing prices is the last thing anyone wants to do. Hardware makers in particular have a lot of costs that need to be covered somehow.

Hardware makers would much rather talk about value than price. And, it's true, value is important. When you add in enough goods and services to something, its value increases - and so does its desirability. This is the basic argument going on between the Xbox One and the PlayStation 4 right now, between $499 and $399. Sure, the PS4 is cheaper, but for $100 more you get the improved Kinect and all the additional cool features it brings. Even so, it will be easier for people to put together $399 to spend on a new console than it will be to get $499. Microsoft will certainly work hard to make people understand the value of the Xbox One at $499, but an extra $100 may be a deal-breaker for some buyers.

"Hardware is not the only part of the game business where price is a big issue. Games have been suffering serious price erosion over the past decade"

An example of just how important pricing is can be seen with the Nintendo 3DS. The handheld console debuted at $249 in the US, and while it had some good initial sales demand fell off sharply. Yes, there was a lack of great software. The 3DS sales began climbing once good titles began appearing... but only after Nintendo dropped the price to $169. Suddenly the hardware looked much more reasonable, and people started buying it.

This is why many publishers are hoping Nintendo will drop the price of the Wii U, currently at $349 (for the version most people buy). The hardware isn't selling well right now, and its prospects look even dimmer when it's up against a PS4 at $399 in a few months. Nintendo's CEO Iwata has staunchly resisted any idea that a price cut is needed or imminent, and no doubt will continue to do that right up until the day when the price cut happens. The strength of the Wii U's Christmas may depend on what its price tag will be - at $299 it would sell better, and at $249 it would probably fly off the shelves.

Hardware is not the only part of the game business where price is a big issue. Games have been suffering serious price erosion over the past decade, though you wouldn't know it by looking at the standard retail price for new software. The massive growth of free-to-play games on PCs and mobile platforms has transformed consumer expectations for game pricing. The fact that you can download and play thousands of top-quality games for free means that people don't think games need to be $60.

It's not just free-to-play games that have caused this transformation. The growth of the used games trade has had a similar effect; if you're not getting a collector's edition, why not get a game for a little cheaper because someone else has already played it? If you shop around on eBay and other sites, games can get remarkably cheap. The continuing value of online multiplayer also affects consumer attitudes and behavior. Why buy a new game if you're still having plenty of fun playing Call of Duty with your friends? As for PC games, Steam has changed player behavior dramatically with its steeply discounted sales. Not sure if you want that new game for $60? If it's available on Steam, wait a while and see if it goes on sale.

Publishers have tacitly acknowledged this price erosion with bundles (Game of the Year Editions) and programs like Platinum Hits for the Xbox 360, where games that once sold for $59.99 go for $19.99. If you don't need to have the latest game right when it comes out, you can get a great deal on it. There are so many games available now that you could make a huge stack of really great games to play and never spend more than a fraction of the original retail price.

Is it any wonder, then, that new game sales at retail have been declining for the last five years? Publishers have wisely decided, so far at least, to avoid hiking prices on new games for next-gen consoles. We'll continue to see high-priced Deluxe Collector's Editions in an effort to wring more profit from the most enthusiastic fans. And new games will almost always be appearing with downloadable content (DLC) available on day one in order to goose the profit margins. Yet budgets continue to climb for game development, and pressures to reduce pricing continue to increase. What's the answer?

Thank you for the article. We can never underestimate the subject, or problem, of pricing.

I have always strongly believed game prices need to come down. I believe in the value of the products but I also have my own personal sense of value when it comes to the money we hand over. I would like £19.99 games rather than £39.99 or maybe £24.99 at most (which is at least closer to what you often see on PC) but it won't happen overnight, or from some sort of light bulb moment... Its not like prices have inflated either, they've always been high and perhaps a bit worse than they are now...

In my opinion, what could eventually force pricing down for console games is the emerging and rival platforms. I know many people don't believe in a Google or Apple console but I do. And as the quality, size and depth of downloadable games increase, and more people start to adopt them as their chosen game experiences, other platforms will have no choice but to see more aggressive pricing for software. I think that could have the biggest impact. I do also feel that as mentioned, growing business models such as Free to Play could be a factor too. Consumers are looking for new ways to get a great game experience for a reasonable or low price, and perhaps even choose how much money they wish to put into the game over its life time... This is a completely different approach.

As for consoles, I think prices will always be a lot more flexible. Before or after launch. I mean, it only takes something like the price of the PS4 to make Nintendo think about the price of their own console for example. Sure, they say there will be no price drop but history shows that the manufacturer will do what's necessary and whether gamers are buying the console or not will decide in the end. They also dramatically lowered the price of the Gamecube not long before launch, out of competition worries with the Xbox and PS2 around. A later price drop made it the fastest selling console of all time in some territories for that period of time. Likewise, aggressive pricing with the Xbox before and after launch had a dramatic effect on sales, that simply couldn't be ignored. PS3 again was had sales issues at its initial price point and flew of the shelves after a price drop....

So yes, whilst the manufacturers do like to talk about value a lot, the price people are prepared to pay will always dictate the retail price in the end. If prices aren't right, the console will stay on the shelves.

So yes, whilst the manufacturers do like to talk about value a lot, the price people are prepared to pay will always dictate the retail price in the end

Meanwhile, the Steam summer sale started and already people are crashing the main store page because they are more than willing and "prepared" to throw more money at the digital service. Your move Origin!

Then some companies say that if they raise game prices it will make things better... no it wont. They do alot of stupid things on the business, development and marketing end that are pretty stupid. However SONY is catching on to this. This is where the success of the PS4 will ride on. Raising game prices, a chunk a change from used games, and all these sneaky methods to penny the shit outta gamers wont fix a thing. The real problems are elsewhere.

The market and the industry changed but I think the game prices failed to adapt as well.
Everyone is talking about the emerging mobile market and free to play business model yet no one looks at the value of content.
Digital sales need to be adjusted and Steam per se is the perfect example that it is a) possible and b) works.

I see the prices on steam, purchased a few games and i see so many people purchasing games in the summer sale and I wonder why dont developers offer games cheaper with the thought of offsetting the lower cost with more people actually buying the game. I see that more people buy stuff when its cheaper. The 60$ price tag has got to go. Im certain more people will be inclined to buy more if games were cheaper. More people purchasing a game should offset the lower price tag.

I see so many people purchasing games in the summer sale and I wonder why dont developers offer games cheaper with the thought of offsetting the lower cost with more people actually buying the game

Yeah, all games should be launched at their sale price, then they can have sale quantity revenue the whole year around!

Oh wait, it doesn't work like that. People buy a load of stuff in sales because it's a sale. The limited availability of the sale price tweaks different bits of your brain (the same bits that the evil f2p developers often prey on, but don't worry it's not evil when Valve/Steam do it, so you don't have to struggle with any cognitive dissonance).

More people purchasing a game should offset the lower price tag.

Well there are certain inelastic costs involved in making boxed games that don't affect Steam, so it's not quite so simple as "if the game costs half as much, and twice as many people buy it, the publisher will make the same amount of money".

But you speak with such confidence that you surely know a lot more than the guys currently setting game prices. So tell us Rick, what's the magic price point that your sums point to?

The problem with price points is (at least in this day and age), gamers are smart to the point of stupidity. New game comes out, be it $60 or $10 or $5 and one of the first five posts on any message board is "I'll wait for it to go on sale" followed by a hundred posts agreeing.

When the game does go on sale, the price STILL isn't cheap enough for some who either pirate it or wait until it's even cheaper. By the time the game goes up for free or a penny as part of a bundle, then they'll complain that they can't download it when they want to because the servers are jammed up (see Bundle Stars' Anomaly giveaway which happened to kick off as the Steam sale went live - oops).

Funny - yesterday, Best Buy seems to have made something of a mistake and gave away a few thousand copies of Metro Last Light for a penny (it was supposed to cost that if one bought a new 3D card). Yeah, I jumped on that deal, but it was gone thanks to people creating multiple accounts and buying up as many copies as they could check out one by one.

"An example of just how important pricing is can be seen with the Nintendo 3DS. The handheld console debuted at $249 in the US, and while it had some good initial sales demand fell off sharply. Yes, there was a lack of great software. The 3DS sales began climbing once good titles began appearing... but only after Nintendo dropped the price to $169. Suddenly the hardware looked much more reasonable, and people started buying it.

from the above article with my italics. As they mentioned without realizing what they said. It's not just about price-point, it also about availability of a wide range of great games. If the 3DS had come to market at $169, it would still have not sold without quality software releases.

With, to all intents and purposes, almost exclusively, FPS titles being released on both new platforms, it will be seen whether multiple products within the one genre will excite gamers to get the new machines. If all you see is 15 variations of C.O.D., would you spend $400 or more? I think you will look at all those Game of the Year and Platinum Hits games of the last couple years for their current machine(s)!

The steam sales works great, but in part is because the perception of a great opportunity to buy something expensive for cheap. I have almost 200 games on steam, and I played, maybe, half of them, many of them I never even installed it. I bought many games that I never care about, just because "hey It's a 40usd game for 5 bucks!" and I know many people who do the same (some times it's peer pressure).

Also, I don't buy many games at launch / full price, only the ones I know that I will invest a lot of time on it (more than a hundred hours). For games like Battlefield, Civilization, Fifa or Fallout sure, because I know that 60usd for them is nothing compare to the amount of hours that I will play them. But I will not pay 60usd for a 6hs single player (most likely linear) experience, no matter how good is it...

I've been buying and playing games for at least 15 years, and have never bought more than about 2 or 3 full price titles a year. 10 years ago, the other 75% of games that I bought were second hand retail copies. Nowadays, the majority of games I buy are either Steam sales, or cheap indie games that are less than $10 on launch in the first place (and probably only get round to playing about 80% of them). I honestly don't see any reason why I will ever buy more than 2 or 3 $40+ titles a year, it's so rare to find one that's honestly worth the vastly bigger price in terms of either enjoyment or staying power, and I can't imagine why that would ever change.

The steam sales works great, but in part is because the perception of a great opportunity to buy something expensive for cheap

And that perception is as real as it gets in the truest sense of the word. I mean, just now I bought The Witcher 2 for £3.74, I don't even care about The Witcher, however I'm curious and want to try it out, a game that otherwise the developers CD Projekt RED would never get a cent out of me. I checked and that game is currently £15 as an Xbox pre-owned or another £15 as PC brand new straight from Amazon.

Who in their right mind would buy a May 2011 game for 15? Considering the fans of the series buy it within the first 6 months, I would say not a lot of people.

Rick Lopez: I see so many people purchasing games in the summer sale and I wonder why dont developers offer games cheaper with the thought of offsetting the lower cost with more people actually buying the game

Anthony Gowland: Yeah, all games should be launched at their sale price, then they can have sale quantity revenue the whole year around!

Oh wait, it doesn't work like that. People buy a load of stuff in sales because it's a sale. The limited availability of the sale price tweaks different bits of your brain (the same bits that the evil f2p developers often prey on, but don't worry it's not evil when Valve/Steam do it, so you don't have to struggle with any cognitive dissonance).

Well there are certain inelastic costs involved in making boxed games that don't affect Steam, so it's not quite so simple as "if the game costs half as much, and twice as many people buy it, the publisher will make the same amount of money".

Wow, what a condescending tone, you must be fun at parties.

I don't see anywhere in his comment where Rick actually says they should release at Sale price, he says they should be cheaper, which was what a lot of others have also voiced over the last two articles on GI about this topic.

And I wouldn't consider using marketing tricks and temptations on a sale by Steam as "evil", since at least on a Steam sale you can easily know exactly what you're getting into if bothered to Youtube some gameplay and read some reviews prior to purchase. Not to mention Steam has built up a great reputation over the years.
Unfortunately we can't say the same about F2P games, where most of the reputation they got is precarious since their games are usually developed revolving around a business money making plan to constantly sell us extra coins of <insert uninspiring name here> so we can have some 'game energy' to play the game another hour.

Are we really complaining now because steam gives us money saving opportunities to play racks of games (no strings attached on Micro-transactions/money grabbing schemes for the most) 2 times a year?

But you speak with such confidence that you surely know a lot more than the guys currently setting game prices.

I think the relevant question here is more have those "guys" setting the game prices even tried to see how it would work out selling $35-40 dollar games at release? It's a risk they're not willing to take, and something that I completely understand. But if they can't raise the prices more than they are now because it would be ridiculous,

there are certain inelastic costs involved in making boxed games that don't affect Steam

...Then they should lower the ridiculous budgets.

Obviously manufacturing, console royalties, distribution, marketing and development it self has costs, what it's hard to understand are the marketing budgets going far beyond the development cost. Far far beyond.

So tell us Rick, what's the magic price point that your sums point to?

Paying no mind to the bordering ad hominem in your entire post, I'd say it's not really up to us to throw a number with sums we can't make because we don't have the numbers in the first place to begin with, that's up to the price setting "guys", we can only ponder where all the money goes isn't it... (ie; Aliens: Colonial Marines).

I'm going to agree with Andreia and Rick with this one. It would be very interesting what kind of Supply and Demand Curves are being used to set todays prices.

I would also very much like to see the justification of these huge overheads (ie. marketing budgets) within games development. When you see the number of downloads of games on iTunes as well as the success of small scale games such as Minecraft, it makes you wonder the value of spending exorbitant amounts of money chasing the everyman via conventional marketing practises (such as TV or bus signage), rather than spending it on internet based advertisement.

The bottom line is this: consumers don't care about the industry's challenges and problems. Nor should they. Their goal is the same as the corporations behind the games: minimize costs while maximizing the ROI. They'll pay a premium for products when they reasonably believe the product is worth a premium, or when they have an essential need but no other purchasing options. Now, the message consumers clearly communicated to the industry over the past several years is based on their experience with core games, the majority don't believe the games in their current form are worth $60. And Sony's experience with PS3 pricing also proved the majority of consumers don't believe game consoles are worth more than $300 to $350. Console price-points in the $200 to $300 range seemed to be the sweet spot for a majority of the mass market.

So Sony, Microsoft, Nintendo and the core development community must come to terms with this and start creating and pricing products within this context. Because the strategy of attempting to transfer the costs of internal problems onto consumers clearly isn't working.

@Andreia: Oh, I think you'll enjoy the game a lot. That team can make a mighty damn fine engrossing game, that's for sure. You don't need to have played the first one at all and the game is pretty lengthy, so that $3.74 is going to be the best $3.74 you've spent on a game, I'm betting.

Don't just look at the sales prices. Also look at the considerable drain of talent AAA productions are facing from people financing themselves over kickstarter or going indy to begin with.

Far more than the discounted product being an alternative to a full price $60 game, we see new business models, fund raising tactics and retail strategies being an alternative to creating a $60 in the first place. How often do you find that while a $60 might have better production values in term of presentation, it is outclassed by nearly every $5 game on Steam once it comes to gameplay? Far too often for any $60 game to feel safe.

In the same way that high budget movies have become accustomed to making their money back internationally and with DVD BluRay sales on top of that, high budget games might face the prospect of discounted sales being an integral part of a production's bottom line. There will still be money made, just not exclusively from selling a $60 version of the game with DLC on top. Every game of the year edition and Steam sale already stands testament to that fact.